June 20, 2018
CEPR Co-Director Eileen Appelbaum took part in a recent panel discussion on the Future of Work. This is a Q&A prepared for the event.
What are the most important takeaways from the new CWS data?
In February 2005, 7.4 percent of workers were independent contractors. In the new CWS data for 2017, this has decreased to 6.9 percent — about what it was in 2001. Gig economy workers are a subset of these workers — so the decline in the share of independent contractors was a surprise to many pundits. But other studies have shown that gig workers are less than 1 percent of the US labor force.
The low share of independent contractors is not surprising to economists who follow these issues. Independent contractors are about 60 percent of self-employed workers. Regularly published data on self-employed workers show that this category has hardly increased since 2005.
This doesn’t mean that nothing has changed since 2005. For example, the number of independent contractors in transportation has increased by about 250,000 — probably due to Uber, Lyft, Via — while those in construction decreased by almost as much. Still, 19.3 percent of construction workers are independent contractors compared with 5.7 percent of transportation workers.
What is being left out by the CWS numbers? What parts of the workforce or labor market might they be leaving out? What are the research gaps and unanswered questions? What do we need more research on?
I have argued that firms contracting with other firms for goods and services — called subcontracting or domestic outsourcing or fissuring — has greatly increased over the last several decades. I think this is a more important example of the changing nature of work than the gig economy. A clue to this is the growth of employment in business and professional services, which are often contracted to other businesses. However, we don’t have good data sources that would allow us to estimate the scale and effects of subcontracting in the US. We need more research on this phenomenon.
The question on contract work in the CWS is not very good. It asks about only one very specific type of contract work — when the contract firm assigns a worker to the worksite of a client firm. A security guard employed by a contract firm and assigned to a particular hospital will be counted in the CWS. But workers at a commercial laundry that has a contract to do the hospital’s laundry are not counted in the CWS. Neither are the workers at an IT firm that develops software for the hospital’s electronic health records system.
Not surprisingly, the CWS finds that less than 1 percent of workers — 0.6 percent in 2017 — are contract workers.
Why is looking at and understanding alternative work arrangements important?
According to the CWS, 90 percent of US workers are counted as employed in traditional work arrangements in 2017. This includes the large number of workers employed by contract firms that are not counted as contract workers in the CWS. The situation of these workers — often employed by subcontractors operating on a shoestring who are dependent on winning contracts that go to the lowest bidder — is, in my view, a big part of the story of workers’ stagnant wages and economic insecurity. Despite near-record low unemployment, there was no increase in average pay of workers over the 12 months from May 2017 to May 2018.
Subcontracting appears poised to increase as lead firms, under pressure from financial markets to cut headcount and pay, focus on a narrow set of what they believe to be their core competencies and outsource most of the work and employment to other firms. We need better data on this development if we are to understand how the labor market functions for a large segment of the workforce. We need these data in order to develop labor market policies that improve pay and working conditions for vulnerable workers.
